Warren's Wisdom- Katrina on my Mind- 9/26/2005 Katrina on my Mind
I have been meaning to write this note about the economic effects of Hurricane Katrina for a couple of weeks but I keep being held back by a fear that I�ll say something which makes light of the impact of the storm. Tonia Wahbeh, our extremely capable Client Services Associate, is originally from New Orleans and her father arrived safely in Columbus last week, after almost ten days of waiting, floating, being arrested & released, hitching rides and finally taking a convoluted trip from Baton Rouge to Indianapolis via Greyhound bus. The wear and tear on all of us in the office has been palpable, yet if the past is to be any guide, the most likely effect of all of the angst � at least on the country�s economy � will be more positive than negative.
The classic cure for devastation has always been a healthy dose of consumption. Since consumption requires production, which in turn requires the input of raw materials & labor, natural disasters tend to be good for business in spite of the often terrible human costs.
Increasing consumption also has a tendency to elevate inflation (or inflation fears, anyway) so the Federal Reserve just raised it�s benchmark rate for short-term borrowings, in hopes of keeping potential inflation in check. Economics is as much an art as a science and, although I do not agree with the Fed�s inflation fears, I recognize that this branch of our government is trying to act in the best interests of the country.
One of the reasons that I�m not terribly concerned about the return of inflation is the tendency of our capitalist society to become more efficient over time. For example, rising gas prices make us more aware of fuel-efficient alternatives and the average mileage of our automobile fleet improves. More broadly, since companies are rewarded with increasing value as a response to their success, a long term commitment to operational improvements tends lower costs, improve profits and dampen inflationary pressures.
One of the all time champs at working to keep inflation low is our friend from Bentonville, Arkansas: Wal-Mart. From my reading, Wal-Mart appears to have done a much better job of rallying people & necessities to meet the needs of storm victims than the Federal government has. They have worked to re-open stores in affected areas, sent hundreds of employees in to help and donated truckloads of goods to the hardest-hit towns.
Wal-Mart�s stock has done very poorly over the past 12 months, especially compared to direct competitor Target. Will �doing the right thing� translate into positive public relations and thus into additional sales? If so, will that help the company�s valuation; will Wal-Mart be a better investment this year than last? We have no way to know but it is sometimes true that a psychological turn-around can be important to a company � or the entire country.
As I write this note, Rita�s rains have re-broken the levees in New Orleans � yet another delay in Tonia�s father�s return home. Will FEMA get the job done this time? I don�t know but the next time someone suggests a national health insurance plan, since �the government is better equipped to take care of us than private industry�, I�ll remind them of the difference between governmental and business response to this season�s hurricanes.
|
|
INDEX |
�2006 Warren Ward Associates. All rights reserved. |